Watchdogs Sue Over FEC Inaction

Two watchdog groups have sued the Federal Election Commission for dismissing a string of complaints they lodged alleging that large donors used limited liability corporations to shield their identities—a violation of election laws that prohibit “straw” donations.

The Campaign Legal Center and Democracy 21 argue in their lawsuit that the agency’s dismissal of their complaints has given donors the green light to violate disclosure laws without punishment. The FEC’s inaction signals further dysfunction in the agency charged with enforcing such violations, those filing the suit allege.

“This clearly is an agency out of control,” said Larry Noble, general counsel for the Campaign Legal Center, in a statement. “The agency is now sanctioning the intentional undermining of the integrity of campaign-finance disclosure. Each time the commission fails to pursue a serious violation of the law, it weakens our democracy and the ability of Americans to know who is truly influencing our elections. It also sends a loud and clear message that those who violate campaign-finance laws will face no penalties.”

The lawsuit comes amid growing concern over the flow of major contributions from shadowy limited liability corporations, or LLCs, to super PACs in both the presidential elections and down-ballot races. As the Center for Responsive Politics has reported, super PACs are more reliant than ever on large contributions from LLCs.

In March, the agency’s commissioners deadlocked over whether to investigate a handful of cases, a move that campaign-finance watchdogs say gave donors the go-ahead to continue using LLCs to remain anonymous. Some of the complaints lodged by the two groups reached as far back as 2011, including a complaint over three $1 million contributions given to Mitt Romney’s presidential super PAC Restore Our Future through non-disclosing LLCs. The man who funneled the money through the LLC even came forward and admitted that he had done so, saying he had thought it was legal.

Then in April, the Republican members of the commission released a statement explaining that they had voted to dismiss the complaints because they didn’t believe the agency had given donors proper notice as to how the agency would enforce contributions through LLCs. Watchdogs complained that under that reasoning, any LLC contribution made prior to the commission’s April statement would be immune from prosecution under the “straw donor” ban.

In an interview with The Washington Post, Republican Commissioner Lee Goodman said future violations will be enforced. “Now everyone should be on notice,” he said. “If you funnel money through an LLC entity for the purpose of making a political contribution and avoiding disclosure of yourself, that is an abuse of the LLC vehicle.”

However, it remains to be seen whether the commission takes up action on a slew of still-pending LLC complaints.

The two watchdog groups’ lawsuit alleges that the FEC’s dismissal of the complaints is “arbitrary and capricious,” and the commission’s retroactive immunization of previous violations sets a precedent for future inaction on enforcement matters. Further, the groups allege that the FEC has given big donors an easy way to get around disclosure laws, which the Supreme Court has repeatedly upheld despite legalizing unlimited outside spending.

“LLCs are growing vehicles for laundering dark money contributions into federal elections,” said Fred Wertheimer, president of Democracy 21, in a statement. “Anonymous donors are giving contributions to super PACs through LLCs, and only the LLCs, not the actual donors, are being disclosed to the public by the super PACs. Our FEC complaints and lawsuit are designed to bring an end to these ‘secret money’ schemes before they get completely out of hand and to obtain enforcement of the law in cases that we believe involve clear violations.”